Feb. 20 (Bloomberg) -- Riding the bus to work in Santiago
takes so long that Andrea Gomez, a 32-year-old lawyer, spends
almost seven times as much money a day on taxis to avoid delays.

“It takes forever to get to work, and you arrive in a bad
mood” when you ride the bus, Gomez said by telephone from the
Chilean capital. “Then it takes two hours to get home.”

Commuters are spurning buses for cars and trains as Chile
eliminates routes and lengthens wait times between buses to
reduce the debt it takes on to subsidize the transportation
system. Cab rides like Gomez’s are also helping to fuel a record
jump in borrowing costs at Inversiones Alsacia SA, the only bus
operator in Santiago to rely on overseas debt financing.

Yields on the company’s $405 million of dollar-denominated
bonds surged 2.16 percentage points this month to 9.9 percent,
the biggest jump since it sold the notes in February 2011. Debt
yields for transportation companies in Latin America fell 0.2
percentage point in the same span, according to Credit Suisse
Group AG.

JPMorgan Chase & Co. recommended on Feb. 12 that investors
sell the bonds on concern falling ridership is causing cash to
drop to levels that may force Alsacia to offer more guarantees
to debt holders, while Fitch Ratings and Moody’s Investors
Service said last week they may lower Alsacia’s debt rating.

Cash Shortage

“They are going a little short of cash in terms of the
debt-service account,” Raymond Zucaro, a managing principal who
holds Alsacia bonds as part of a $280 million portfolio at SW
Asset Management LLC in Newport Beach, California, said in a
telephone interview. “Now that people see balances are a little
low, there is a re-pricing of the risk.”

Alsacia’s borrowing costs are now almost twice as high as
the average of 5.40 percent for Latin American debt with similar
credit ratings, according to Credit Suisse’s LABI index.

JPMorgan lowered its recommendation for Alsacia’s bonds to
underweight, the equivalent of sell, from market-weight. Fitch
said it will study whether to cut the company’s BB rating, which
is two levels below investment grade, as demand missed
expectations in the past two years. Moody’s may downgrade the
Ba2 rating after revenue fell short of estimates.

Alsacia’s ratio of cash flow to total debt including
interest has fallen to 1.12 times, approaching the 1.1 times
threshold that may force the company to shift money currently
used for administrative and repair expenses to a fund that will
be used to pay investors, according to JPMorgan’s Daniel Sensel
and Daniela Savoia.

Fuel Prices

The debt service coverage ratio was 1.4 in February 2012,
according to Moody’s.

While such an event would limit Alsacia’s ability to use
cash as it sees fit, it wouldn’t hurt investors, Jose Ramon
Aboitiz, the company’s investor relations director, said by
telephone. It’s impossible to speculate whether Alsacia will
remain above the threshold of 1.1 because there are factors such
as fuel prices that are out of its hands, he said.

JPMorgan says the ratio may fall below 1.1 by the end of
April as a government payment to compensate Alsacia for a
decline in demand won’t arrive until May.

Alsacia held $92 million in cash at the end of January,
according to JPMorgan.

‘Default State’

“They’re very likely going to breach the ratio in the
short term, but that doesn’t mean they’re going to be in a
default state,” Dorothea Froehlich, a money manager at
MainFirst Bank AG in Zurich who holds Alsacia bonds, said in a
telephone interview. The increase in yields “will calm down
once the quarter has passed and the payment from the government
has been made.”

Alsacia on Feb. 19 made a scheduled debt payment of $47
million on the bonds, Chief Financial Officer Guillermo
Sarmiento said by telephone.

Yields on Chile’s 10-year inflation-linked bond fell one
basis point, or 0.01 percentage point, to 2.63 percent from
yesterday, and have declined 10 basis points from a 14-month
high of 2.73 percent on Feb. 7.

The cost of protecting Chilean bonds against default for
five years was little changed at 69 basis points in New York.
Credit-default swaps pay the buyer face value in exchange for
the underlying securities or the cash equivalent if a borrower
fails to adhere to its debt agreements.

More Expensive

Bus demand has fallen about 3 percent a year since the
government in 2007 tried to make Santiago’s transportation
system more efficient by introducing different routes and bus
lanes, according to Oscar Figueroa, an urban studies professor
at the Pontifical Catholic University of Chile. The government
has been forced to cut back on routes and reduce the frequency
of some buses as costs of the new system rose, Figueroa said.

An increasing number of Chileans can also choose more
expensive means of transportation after the economy expanded 55
percent since 2007, giving the Andean nation the highest per-capita gross domestic product among major Latin American nations
tracked by Bloomberg.

The number of new cars sold in Chile surged 23 percent last
year from 2010, according to the national car association.

For Andrea Gomez, paying the 4,000 pesos ($8.47) for a 15-minute cab ride to work in Santiago’s business district of
Huechuraba -- rather than the 590 pesos to spend an hour on the
bus -- is worth it.